Masala bonds would find favour with NBFCs as the Reserve Bank of India (RBI) has issued a discussion paper proposing new limits for bank’s lending to the finance companies.

These masala bonds — although denominated in Indian rupees — are listed on the international market and offered and settled in US dollars, providing easier access for foreign investors.

Indian housing finance major HDFC recently raised Rs 3,000 crore through such bonds. It is the first Indian company to issue such bonds and follows issuances by International Finance Corporation (IFC) and Asian Development Bank (ADB).

“We expect the market to deepen further with more issuers following HDFC Ltd.’s issuance,” Alka Anbarasu, Moody’s Vice President and Senior Analyst was quoted as saying in a statement.

“In addition, the Indian rupee has depreciated by about 5.3 per cent on a year-on-year basis, allaying some investor concerns about emerging market currency risk at a time when financing conditions have become less favorable for many developing countries,” added Anbarasu.

The development of the masala bond market will help Indian NBFCs diversify their funding sources, which is their key credit weakness.

Moody’s said that regulatory restrictions prevent NBFCs from accepting current and saving deposits.